Money

Banking on the Future with Indigenous Entrepreneurship

Indigenous economies existed long before Canadian confederation. The late 1600s marked the beginning of international commerce in Canada as English and French settlers arrived and developed trade with Indigenous populations. Indigenous entrepreneurs utilized their skills and knowledge to trap and harvest a variety of animal and fur products to trade for finished European goods.

Old Money

With the growth of Canadian business and the emerging economy, the colonial government regulated the early Canadian banking system.1 The banking system became consolidated by a few large banks with transcontinental reach. This limited the diversity and entry of new banking participants and ensured the federal government would have centralized control of the banking system. Indigenous communities were left out of the system, on-reserve banks were non-existent, and Indigenous people were discriminated against or blocked from accessing banking services or creating their own.

The negative effects of this banking system are still in force today. The historical lack of relationships between banking institutions and Indigenous communities have long been a barrier to Indigenous business development and growth. In fact, the first major financial institution in Canada did not open a full-service, on-reserve branch until 1991.2 Systemic discrimination and historically oppressive government legislation have left Indigenous
communities and businesses largely disadvantaged throughout Canada’s history. It is crazy to think that up until the mid-1940s, an Indigenous person living on-reserve was not be allowed to leave the reserve without a pass issued by a Government Indian Officer. If the person were caught outside of a reserve without a valid pass, they could be imprisoned. These injustices stifled the ability for Indigenous businesses to grow or for individuals to have access to banking and lending.

Major Potential

The good news is that the banking system is changing, and Indigenous entrepreneurship is quickly expanding. A growing population of over 1.6 million Indigenous people across 600 communities are seeing increased resources and support networks to address the gaps in Indigenous banking and access to capital. New banks and support networks are being created by and for Indigenous peoples, to ensure long term sustainability and
community wealth creation. The 2016 Aboriginal Business Survey indicates that the population of self-employed Indigenous entrepreneurs has grown 15.6 per cent from 2006 to 2011, with growth accelerating.3 While two thirds of Indigenous businesses solely employ the owner, a third of Indigenous business provide employment to others. Currently, Canada’s Indigenous economy is valued at $30 billion and is expected to more than triple in size over the next five years.4

Lending Out

Access to equity and capital through traditional financing has been cited as a challenge by Indigenous start-ups and growth focused firms. Furthermore, the Aboriginal Business Survey has indicated that only three in ten Indigenous businesses have a formal business plan, a document that is typically required to access lending. The good news is that several Aboriginal Financial Institutions (AFIs) exist across Canada to provide helpful
programs. For example, the Saskatchewan Indian Equity Fund, the SaskMétis Economic Development Corporation, and the Clarence Campeau Development Fund in Saskatchewan have professional business plan development grants and capital loans and grants. The benefit of developing a professional plan is that risks and opportunities are clearly outlined, and financial projections are laid out. Indigenous lending agencies work together with their clients to promote business success. Many AFIs hold incredibly low amounts of loan write offs or bad debts. Loan repayments are reinvested in new startups and the cycle of wealth creation repeats.

Furthermore, Indigenous business grants and lending programs exist to provide equity to support projects. Typically, if an Indigenous entrepreneur has 10 per cent of equity to contribute, lending programs can provide the capital required to enable other banks and credit unions to get on board with the project. This has the effect of reducing risk to the traditional banks and increases their exposure and diversity to working with more Indigenous
businesses: a win-win for all.

Trying times also necessitate the need for unique supports. By developing close relationships with clients, Indigenous lending agencies can respond quickly to administer programs to best serve their client needs. The rapid severity of the COVID-19 lockdowns placed strain on many small businesses. Federal COVID-19 relief funding was quickly administered to Indigenous businesses in need via the National Aboriginal Capital Corporations Association (NACCA) network.

For the People

Aside from small business development, Western Canada has witnessed the emergence of a self-sufficient, Indigenous-owned and governed bank. The First Nations Bank of Canada was founded in 1996 and is headquartered in Saskatoon, Sask. The founders of the bank sought to create a federally chartered bank that was created, governed, and owned by Indigenous shareholders. The First Nations Bank of Canada’s mission is to “…advocate for the
growth of the Indigenous Economy and the economic well-being of Indigenous People.”5 The First Nations Bank provides banking solutions for Indigenous and non-Indigenous individuals across Canada. Year-over-year the bank has witnessed successful growth and as of 2020, the bank is over 83 per cent owned and controlled by Indigenous shareholders. Indigenous banking represents of 90 per cent of the bank’s customer portfolio and it holds over $1 billion in total assets.6

Other banks are also increasing their services to support Indigenous customers. For example, the Business Development Bank of Canada (BDC) has developed an Indigenous banking unit designed to work with Indigenous clients with unique needs. Dedicated Indigenous account managers work exclusively with Indigenous clients and communities. Other Big 5 chartered banks are taking note of the opportunity to work with Indigenous
communities. In 2018, RBC accomplished 18 per cent year-over-year growth in both loans and deposits within its commercial Indigenous segment, significantly outpacing growth in other areas of the bank.7 BMO, RBC, and CIBC have developed Indigenous banking divisions to establish more on-reserve branches and services. Indigenous communities are becoming increasingly involved in large-scale resource projects and are working with large
lenders to make deals happen. The Indigenous banking space has huge upward potential, and the future looks exciting. The goals of increasing economic wealth creation and self-sufficiency in Indigenous communities is happening. Barriers are being broken down, and more Indigenous people are creating businesses, becoming a vital piece of Canada’s prosperity.

Opportunity Knocks

Since the days of the fur trade, Indigenous peoples have held a bold, entrepreneurial spirit. It is a shame that for decades Indigenous communities have effectively been shut out of the Canadian banking system. The current intensification of Indigenous business supports, and banking will provide fuel to grow the Canadian economy. Productive lending leading to sustainable business creation in Indigenous communities will increase economic self-sufficiency, grow Canada’s economy, and produce more jobs, goods and services. Great work is continuing on these fronts, and it will be exciting to watch the growth of the Indigenous business and banking sectors in the years to come.

For more information about lending programs in your area, visit the NACCA network of Aboriginal Financial Institutions at nacca.ca.

References

1Smith, A. (2012). Continental Divide: The Canadian Banking and Currency Laws of 1871 in the Mirror of the United States. Enterprise and Society, 13(3), 455-503.
2 Aboriginal Banking, RBC, https://www.rbc.com/history/milestones-at-aglance/aboriginal-banking.html
3 Promise and Prosperity: The Aboriginal Business Survey, Canadian Council for Aboriginal Business, https://www.ccab.com/wp-content/uploads/2016/10/CCAB-PP-Report-V2-SQ-Pages.pdf
4 Indigenous Entrepreneurship in Canada: The Impact and the Opportunity, RBC, https://discover.rbcroyalbank.com/indigenous-entrepreneurship-in-canada-the-impact-and-the-opportunity/
5 Vision Purpose Values, First Nations Bank of Canada, https://www.fnbc.ca/AboutUs/WhoWeAre/VisionPurposeValues/
6 First Nations Bank of Canada – 2020 Annual Report, First Nations Bank of Canada https://www.fnbc.ca/Business/
7 Indigenous banking a bright spot for big banks as capital flows into communities, Financial Post, https://financialpost.com/pmn/business-pmn/indigenous-banking-a-bright-spot-for-big-banks-as-capitalflows-into-communities

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